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A bicoastal newspaper crisis

If the Seattle Times Co. can't sell its Maine subsidiary, the consequences could be severe — including closure of three of that state's biggest dailies and loan default for the parent company, according to newly filed legal documents. And while a deal might seem imminent, the Times Co. calls it "highly uncertain."
The <i>Portland Press Herald</i> of Aug. 1, 2008.

The Portland Press Herald of Aug. 1, 2008. None


Financial problems at the Seattle Times Co. and its Blethen Maine Newspapers subsidiary are so severe that if the cash-strapped company cannot soon sell the Maine division, it might have to shut it down, leaving that state's largest city and two smaller ones, including the state capital, without daily newspapers.

That bleak assessment is by Charles Cochrane, Blethen Maine's chief executive, in a nine-page affidavit [279K PDF] filed Tuesday, July 29, in U.S. District Court in Portland, Maine. Cochrane's affidavit and other documents are part of a lawsuit filed by the Seattle Times Co. against the Portland Newspaper Guild.

On Wednesday, July 30, Blethen Maine Newspapers announced a letter of intent had been signed to negotiate the sale of the chain to Maine Media Investments, a syndicate of prospective buyers that includes former U.S. Sen. and Defense Secretary William Cohen. In a statement announcing the letter of intent, Seattle Times Co. Chief Executive Frank Blethen predicted a sale would result in a "seamless and timely" ownership transition for the Maine chain to the locally based group. A headline today, Aug. 1, in the Portland Press Herald, the chain's flagship, proclaims: "Potential buyers say the Portland Press Herald/Maine Sunday Telegram have a healthy future."

But Cochrane's affidavit characterizes a potential sale to Maine Media Investments as "highly uncertain." And his and other documents paint a grim picture of the financial situation at the Maine papers and their Seattle corporate parent:

  • Both the Seattle Times Co. and the Blethen Maine subsidiary are losing money at an accelerating rate, with losses likely at both units this year and the prospect of a Seattle Times Co. default on loans growing.

  • Cash flow at Blethen Maine Newspapers plummeted more than 88 percent during the first six months of this year over a similar period in 2007. The chain's advertising revenue during that period fell 19 percent, and overall revenue was down 12 percent.

  • Finances at both the Maine chain and the corporate parent are so dismal that the Seattle Times Co. might have to start pulling capital out of the Maine operation to cover the parent company's mounting legal costs from the fight with the Portland Newspaper Guild.

  • Cochrane's affidavit calls the potential sale of the chain uncertain because it requires the Portland Newspaper Guild to agree to renegotiate a labor contract with the prospective buyer. The union and the Seattle Times Co. disagree on the meaning of the contract with regard to continuation of the agreement under new ownership — hence the lawsuit.

  • If the Seattle Times Co. cannot keep the sale process moving rapidly forward, Cochrane's affidavit says, the value of the chain's assets will drop "precipitously," reaching a point where the Times Co.'s lenders won't approve any sale and instead could foreclose and seize the chain's assets.

    "If the lenders choose to foreclose on [Blethen Maine] then a large percentage of [the chain's] workforce would likely be laid off," or the chain might be shut down altogether, Cochrane said.

In addition to the Portland Press Herald and Sunday Maine Telegram, the Seattle Times Co. owns the Kennebec Journal in state capital of Augusta, the Morning Sentinel in Waterville, and MaineToday.com.

According to the filings, the Times Co. began preparing to sell the Maine chain in January. The sale was made public by Blethen in a tearful address to Portland Press Herald staffers in the paper's newsroom in March. About 30 prospective buyers contacted Dirks, Van Essen & Murray, the broker hired by the Times Co. to shop the chain, but Cochrane's affidavit said the list of prospects has dwindled to only the group that includes Cohen, Wilkes-Barre, Pa. publisher Richard Connor, and two Maine businessmen, including the brother of Maine Gov. John Baldacci.

In his affidavit, Cochrane calls the prospect of a deal with Maine Media Investments "highly uncertain." The group is seeking to convince the Portland Newspaper Guild to renegotiate a collective bargaining agreement with Blethen Maine that runs through 2011. A clause in the agreement says it "shall inure to the benefit of and be binding upon the successors and assigns of the Publisher." The union maintains that means the contract should extend to new owners. The Times Co. has sued to clarify that and force the union to arbitrate it. The union has threatened to get a restraining order against any sale.


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Comments:

Posted Fri, Aug 1, 1:54 p.m. Inappropriate

Red ink by the globe-ful: And what about the P-I, Bill? Oglesby told the staff recently that the paper is losing $10 million a year.

Oh, yeah, I forgot: You're the Committee for a One-Hearst-Newspaper Town.
Tony

Posted Fri, Aug 1, 1:59 p.m. Inappropriate

RE: ed ink by the globe-ful: Last we heard, Hearst wasn't in danger of going out of business. But you're right, the P-I isn't exactly profitable.

Posted Sat, Aug 2, 2:11 a.m. Inappropriate

RE: ed ink by the globe-ful: Blethen has been very foolish in the way he has run the Times. He aggravated his employees and lost tons of money in an unnecessarily prolonged strike several years ago. He sued Hearst to try to force closure of the P-I, spending gobs of money on that litigation. Then, apparently because he was going to lose the suit based on the Times' own improper conduct, he settled it, agreeing to pay Hearst $25 million. He went hugely into debt to buy the Maine newspapers at a questionably high price. He's always paid himself a very extravagant salary. Having gone on a hiring spree several years ago in the middle of an economic downturn in order to inflate losses so that he could justify closing the P-I, he's now having to lay off dozens of Times employees. The list of his managerial blunders is long.

hoohah

Posted Mon, Aug 4, 1:06 p.m. Inappropriate

Perils of Pauline: So who was the idiot who signed away the future of Blethen newspapers with a contract clause that gave the union a guarantee Blethen would not be selling the Maine operations until at least 2011? Let me guess.....Hmmmm, does his name begin with an R?
And who failed to create a separate operating company for the Maine purchases, and acted like other (despised) newspaper chains don't act? From the court testimony, it looks to me like some fool has irrevocably melded the Maine operations into his Washington properties so if one goes, they all go? Did no one ever hear of separate operating companies?
Water under the bridge, perhaps, but it sure looks to me that the bankers have the Blethens by the short hairs. The Blethens can't sell the Maine newspapers without the union okay, and they can't walk away from this money losing albatross because the bankers won't let them without sacrificing the Seattle Times and their other Washington properties as well.
It certainly looks to me as if someone got suckered here. Doubtless, those slick but taciturn Pine Tree staters.
So the entire Blethen empire is now foundering? Inquiring readers want to know will there be a 5th generation of Blethen newspaper barons, or will this noble line wither and die out before our eyes? Will Blethen pull another temper tantrum at how horrible and greedy chains are destroying the newspaper business? Will Blethen be left with enough cash to buy another $90,000 SUV?
Brilliant move, whoever is responsible for making it. Not even William Randolph Hearst could orchestrate a final act like this one.

Posted Tue, Aug 5, 2:47 a.m. Inappropriate

Maine papers are the real losers: It seems that people are forgetting about the fate of these Maine papers. They are not the size of the NY Times, or even Seattle Times, but they employ hundreds of folks with good paying jobs, and until now they have always made money and gave the owners a great payback. Now that WE need a little help with a downturn, there is no one there to help us, like we have done for them, time and time again.
The good folks at the Maine papers are the folks who are suffering, and somehow they should be helped.
frankb

Posted Tue, Aug 5, 7:45 a.m. Inappropriate

Query from the Peanut Gallery: Enjoying your reports, but query from the curious here: is there any evidence the P.I. is prepared to take over the Seattle franchise if Blethen goes belly up, as I expect. Hearst isn't doing too well in San Francisco, where it is losing a boatload, and Houston is no longer the cash cow it once was. So is Hearst in any position to take advantage of a sudden windfall in Seattle? Is anyone at the P.I. preparing contingency plans for how it might put together a commercial office and ad sales office, as well as distribute the PI in the event something might happen at the Times? Might be worth a phone call.

Posted Tue, Aug 5, 1:53 p.m. Inappropriate

RE: Query from the Peanut Gallery: Hearst is paying the Blethens $1 million annually for first bid rights on their Times Co. stock. But answering your query with a question: Why would Hearst or anyone pay for all that Times overhead--presses, trucks, street boxes Etc.--when print papers are dying? Hearst is preparing to field test its e-paper, FirstPaper, next year. They have no competition in SF and Houston and if the Times does fade they'll have a clear field to go all-digital in Seattle as well. Here's a theory: The Times Co. pays down enough of its Maine debt to keep its bankers happy by selling five acres of its South Lake Union real estate, dumps its money losing Maine chain on anyone willing to have it, then agrees to fold into one digital e-paper with the P-I, maintaining the JOA and cutting staff and overhead. Hearst ends up the big dog because they own most of the technology, but they both make out like bandits by keeping their market monopoly. How would that play with the Peanut Gallery?
Bill Richards
richards

Posted Tue, Aug 5, 4:01 p.m. Inappropriate

Re: RE: Query from the Peanut Gallery: Thanks for the response. You put much more faith in FirstPaper than I could. The idea that a tab-sized Kindle-like product will take off is beyond me. Look around you and tell me how many people do you see using a Kindle? In fact, have you ever seen anyone on the street with a Kindle? So the idea is FirstPaper will sell or give away these machines that will allow them to read tabloid versions of their newspaper at home. Hey, wonderful. I can do that now with my laptop PC, so why do I need this clunky new machine? How am I going to give the features section to the wife, and the horoscope to my daughter each morning while I read the A-section. It is also not really a new idea since I seem to recall Knight-Ridder spent a fortune trying to come up with some way of printing the papers in people's home before K-R evaporated.
Bottom line IMO is that newspapers will be here for some time, and if the P-I doesn't want to pick up the Seattle monopoly, I bet Black or someone else is salavating.

Posted Tue, Aug 5, 4:26 p.m. Inappropriate

p.s. peanut gallery query: As far as selling off the South Lake Union real estate, you think they haven't tried? But there's this little problem back east with troubled mortgage loans that has dried up the real estate market, including commerical real estate loans. The CRE market is following in the footsteps of home mortgages, and of you look at bankruptcies like Bennigans, Steak & Ale, and Boscov's, you see some big players in mall developments are leaving big shopping malls vacant across the country. I would guess that Blethen has already considered a real estate sale, without a buyer willing to pay his price . Bet he has also looked at selling off some of his other Washington newspapers, without interest in that, either. He's in a real bind because this group involving former Sen. Bill Cohen is probably offering to buy Blethen New England for something like 20 cents on the dollar, or less. Look at this group, and there's not much financing there. The Guild seems involved, indicating they might be able to leverage pension funds. But a short sale leaves Blethen still owing the banks a boatload. It may buy him another year, but the grim reaper will come knocking again next year and this economy isn't going to come roaring back after this sort of collapse. Long post to suggest I see a bankruptcy filing, which breaks the Maine Guild contract agreement and frees the paper to be bought by the Cohen group, then a realizing that even restructuring the debt won't work, and the Washington properties put up for sale, with the P.I. offered the Seattle Times for a song. I think Black will go after Tacoma, and maybe some of the other properties as well.

Posted Thu, Aug 7, 10:38 a.m. Inappropriate

More evidence of Blethen idiocy: If more evidence were needed of Blethen idiocy, comes now Charles Cochrane of the Blethen Maine group to say he didn't really mean what he said:
http://tinyurl.com/6jkthb
Okay, say you are the judge reading Cochrane's lawsuit, and also reading the newspaper. Do you believe his sworn affadavit of big troubles ahead, or his public statement that everything really is tickety-boo? Or do you get really pissed off and kick the plaintiff out of court on the grounds he's wasting the court's time. It's a tough call.
But there is one development that casts further doubts on the financial wherewithall of the Bill Cohen group to have the financing to take on the Maine newspapers. Here's why:
Earmarked to be the editor/publisher of the Maine newspapers, if the Cohen group is successful, is Richard L. Connor, owner of the Wilke Barrie Times Leader, a newspaper he bought from the McClatchy concern in 2006 for $65 million in leveraged money. McClatchy dumped it because the paper was only marginally profitable, but things have markedly worsened since 2006. The Times Leader is dependent on advertising on three Boscov department stores that operate in its circulation district, including the last downtown department store still operating in Wilkes Barrie. Rumors of Boscov's troubles have been circulating for months, prompting Connor to assure the public that worries about Boscov's future are entirely misplaced. As evidence of this, see a story Connor himself wrote for the July 31 Times Leader discounting rumors of Bosco's financial difficulties as nonsense. Four days later, Boscov filed for bankruptcy.
A future for the Times Leader without Boscov is not at all promising. Boscov is to the Times Leader what a piglet is to his mother's teat. But Connor is up in New England inspecting the possbilities of taking on new debts with a New England venture. You have to ask yourself if you were a banker considering loans to this outfit, would that give you much confidence Connor would be able to pay up if this Maine idea didn't work?

Posted Mon, Aug 11, 11:19 a.m. Inappropriate

Blethen bust: If more evidence were needed of the collapsing value of Blethen's Seattle Times, take a look at the Security and Exchange report filed by McClatchy Aug. 11, which shows McClatchy slashed the value of its 49.5% stake in The Seattle Times Co. to $9.9 million from $19.3 million.
I seem to recall it was valued at more than $90 million two years ago, so that is a dramatic loss of value. Yet more evidence of the brilliant Blethen management. I also hear no progress either on the front of selling the downtown property, or the Maine Blethen properties. More layoffs loom?

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